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INTERNAL AND EXTERNAL BUSINESS ENVIRONMENT INTERNAL ENVIRONMENT • These are factors from inside the firm that could affect performance. 1. Finance Available – without money the firm may not be able to do what they wish. 2. Ability of Staff – the more capable staff are the more productive they will be. 3. Information Available – the better the information the better the decisions made. 4. ICT Availability – this can influence the quality and quantity of what is produced 5. Ability of Management – good managers will make good decisions 6. Changes in Costs – increases in wages or raw materials can affect the profitability of the firm EXTERNAL ENVIRONMENT • This is summarised as: • • • • • • Political Economic Social Technological Environmental Competitive POLITICAL • Laws passed in the UK and the EU can affect the what a business does. • E.g. shops are not allowed to sell alcohol on Sunday mornings or the smoking ban in public places. • Failure to follow laws will result in fines. • Other ways the government can influence is through setting taxation rates and investment in infrastructure. ECONOMIC • This includes changes in interest rates, exchange rates, inflation and the economic cycle. • If interest rates are high this could stop firms from borrowing money also customers are less likely to borrow or use credit cards to make purchases. • If the pound is high against other currencies this makes it hard to export goods abroad, reducing the number of sales. • If inflation is high, the prices of raw materials can be expensive which can reduce profits. • If the economy is in recession, people tend to be unemployed or worried about losing their job, therefore not spending money on luxury goods. SOCIAL • DEMOGRAPHIC CHANGES • This is to do with the size and distribution of the population of a country. • E.g. The UK has an ageing population, this has led to a rise in products aimed at older people (SAGA) and firms recruiting older workers (B&Q) • SOCIO-CULTURAL CHANGES • This is about changes in lifestyle and attitude. • E.g. More women working has seen a rise in ready meal and later opening hours • More concern about the environment, forcing firms to maybe use recycled products. • People have more leisure time, changes in attitude to single mothers have also affected the types of products offered. TECHNOLOGICAL • Firms need to keep up-to-date with the latest technology in order to remain competitive. • Have seen a huge growth in e-commerce (buying and selling online) • Use of machinery in the production process – more efficient and cheaper. ENVIRONMENTAL • Firms are aware that they have to be more environmentally friendly, not only because that is what customers want, but can be forced by the government to do so. • It can also include storms, floods, noise. All these can affect how a business operates. COMPETITIVE • What the competition is doing can affect how a business operates. • Firms now not only face domestic competition but also foreign. • Have to keep up or be better than your competition to keep your customers.